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An interest only ARM is made for $200,000 for 30 years. The start rate is 5 percent and the borrower will (1) make monthly interest only payments for 3 years. Payments thereafter must be sufficient to fully amortize the loan at maturity.

a. If the borrower makes interest only payments for 3 years, what will payments be?

b. Assume that at the end of year 3, the reset rate is 6 percent. The borrower must now make payments so as to fully amortize the loan. What will payments be?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92081873

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